Given here is the net operating cycle formula to calculate the operating efficiency and working capital management of a concern. It is also referred to as the operating cycle or cash conversion cycle of a concern. Cash conversion cycle formula is defined as Days Inventory Outstanding + Days Sales Outstanding - Days Payables Outstanding. Take the sum of days inventory outstanding and the days sales outstanding. Then subtract the obtained value with the days payables outstanding.
Cash conversion cycle is an important ratio for companies that carry significant inventories because it highlights how effectively the company is managing its working capital. Net operating cycle formula is useful for calculating cash conversion cycle which company converts its inventory into cash.